The Off-Market Housing Market

The following is an excerpt from an article that first appeared in the October 2017 Housing News Report, an award-winning monthly newsletter published by ATTOM Data Solutions.

There’s a strange omission from the long list of industries vanquished, disrupted, and dismantled by the Internet. Retail chains are closing, cabs are not being hailed, and hotel rooms are going empty.

“The MLS is an antiquated tool created by real estate brokers to keep buyers dependent on them,” according to REX. “But the Internet changed all that.”

Not Dead Yet

The MLS has survived previous declarations of its demise. If such predictions were true we should now see a marketplace filled with broker-less transactions, those selling for-sale-by-owner, so-called FSBOs. In fact, precisely the opposite has happened. Self-sellers are a vanishing species.

According to the 2016 edition of the National Association of Realtors (NAR) Profile of Home Buyers and Sellers, “only eight percent of recent home sales were FSBO sales again this year. For the second year, this is the lowest share recorded since this report started in 1981.”

Grassroots Disruption

But the picture is markedly different at the local level in markets where MLS disrupters like REX are operating.

Single family home sales listed on the MLS represented 89 percent of single family home sales deeds recorded in Los Angeles and Orange counties combined, according to an ATTOM Data analysis of public record deed data and MLS data provided by First Team Real Estate, the largest independent brokerage in California.

Most off-MLS sales are the result of these so-called pocket listings, according to Michael Mahon, president at First Team Real Estate, which covers the Southern California market.

“We have agents who have 50 to 75 buyers sitting there as pent-up demand waiting for listings,” he said. “A lot of these home sellers are willing to entertain an offer that they feel is fair for the asking price they are wanting to get for the property … a ready, willing and able buyer in queue is very appealing.”

Off-Market in Middle America

The share of off-MLS sales were also much higher than the national average across the country in Dallas and Phoenix.

An ATTOM Data Solutions analysis of MLS closed sales counts provided by the Texas A&M Real Estate Center and public record closed sales counts in Dallas County, Texas, shows MLS-closed sales of single family homes in 2016 represented 86 percent of single family home sales recorded with the county for the year.

In Maricopa County, Arizona, home to the city of Phoenix, MLS-closed sales of single family homes

represented just 75 percent of the single family home sales recorded with the county for 2016, up slightly from 74 percent in 2015, according to an ATTOM analysis.

What do Dallas and Phoenix have in common? They are both testing grounds for a quickly growing alternative to listing for sale on the MLS: iBuyers such as Opendoor and Offerpad.

A Closer Look at Opendoor

Opendoor has been able to assemble $320 million in equity and more than $500 million in debt financing. Such numbers instantly make Opendoor a notable player in the local real estate markets where it is active. Moreover, if it finds success, it will be able to go back to the equity and credit markets for additional funding.

“The Opendoor difference is simplicity, convenience and certainty,” said Evan Moore, Opendoor’s head of agent experience. “For sellers, Opendoor makes it easy for homeowners to receive a fair market value offer in a few clicks, eliminating the hassle of home showings and months of uncertainty and giving them the power to close on their timeline. For buyers, Opendoor also provides the ultimate in convenience by providing on-demand access to Opendoor homes all day everyday.”

Old-School Off-Market Expansion

It’s not just disruptive startups like Opendoor and Offerpad that are expanding off-market purchasing, however. HomeVestors, a 21-year-old company known for the “We Buy Ugly” houses signs has exponentially expanded the markets it operates in since the housing bust, according to CEO David Hicks.

“We buy direct from the home owner, without hitting MLS,” Hicks said. “And the people we’re buying them from, they don’t want a Realtor or anyone else traipsing through their house. … They got cats or they got smell. Those are the houses we are buying.”

NetWorth Realty is another direct buyer that has been around for several years and is continuing to grow, with 1,726 deals totaling $234 million in 2016, up from 941 deals totaling $88 million in 2013, according to its website.

“We’ll find properties. Our properties are off-market, they are not on the MLS,” said Networth Realty president Mark Bloom, adding that the properties are also kept off-market when re-sold to investor clients in an effort to provide those clients with fixed pricing outside of a competitive bidding environment. “We fix our pricing. We keep all of our inventory off market.”

MLS Taking Notice

The growing number of acquisitions by iBuyers like Opendoor and Offerpad are catching the attention of the Arizona Regional MLS, which in its August STAT report devoted three pages of commentary to an analysis of off-MLS sales in the market, including those by iBuyers.

“As an analyst, the number one question I get asked is, ‘What percentage of homes sold are listed on the MLS?’”, writes Tom Ruff, housing analyst with The Information Market, a subsidiary of the ARMLS.

The Pocket Listings Problem

Traditional MLS relationships are being challenged by a growing number of member brokers who believe the fastest and easiest way increase profits is to stop dividing commissions, forget about MLS cooperation, and cut out other brokers.

Is there a way that “coming soon” transactions could be made more palatable?

“Coming soon can be an issue from many fronts,” said Matthew L. Watercutter, principal broker and senior regional vice president with Ohio-based HER Realtors. “The only way for ‘coming soon’ to be truly a benefit, is you still do not show the home to anyone until it is actively marketed, so all potential buyers have a fair and equal opportunity.”

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ATTOM Data Solutions is a leading provider of publicly recorded tax, deed, mortgage and foreclosure data along with proprietary neighborhood and parcel-level risk data for more than 155 million U.S. properties.